NFTs are suddenly a topic in the discussion of arts funding. For an example, see Elle Griffin’s newsletter on the subject.
There is an awful lot of bafflegab around NFT’s (Non-Fungible Tokens) and I don’t propose to unravel it for you, since that would involve the unpleasant business of working it out for myself. But I think I get the basic idea behind NFTs.
Consider the Mona Lisa. The original Mona Lisa is in the Louvre. It is reckoned to be worth close to a billion dollars. Or you can go on Amazon and buy a Mona Lisa poster for about $25. Given the quality of modern photography and printing you can have pretty much the same aesthetic experience looking at the one in the Louvre or the one you buy from Amazon. Actually, you can probably get a better aesthetic experience from the poster because you can sit and look at it in your own room without being jostled by smelly tourists and hurried along by impatient guards.
And yet, the original Mona Lisa is worth close to a billion dollars and the resale value of your poster is probably fifty cents. Being the original matters.
But now so many things are being created digitally. Digital things are made of bits, not atoms. There isn’t really such a thing as the original bits versus a copy of the bits. What are you going to do—rip the hard drive out of your computer and sell the original section of the disk where your creation was first recorded? Good luck finding it. The fact is, the bits get moved around all the time. If you store your bits in the cloud, you have no clue where they are physically stored. And it doesn’t matter, because they are the same bits, no matter where they are recorded, because a bit is just information. It isn’t a physical thing at all. Yes, your bits have to be recorded somewhere or you will lose them, but the recordings move around and the recording media is constantly refreshed and reused.
The distinction between the original Mona Lisa and the Mona Lisa poster, therefore, does not exist for digital things. In one sense, there are an infinite number of originals. In another, there are an infinite number of copies and no original at all. Either way, no one is going to value the original recording of those bits at a billion dollars. They couldn’t even locate it.
This is where NFTs come in. Using a combination of math and convention, an NFT creates something that, if you kind of look at it sideways, is something like an original thing made of atoms. Like all digital things, it is made of bits, but that particular pattern of bits is registered in a ledger in a way that is guaranteed to be unique so that even if the bits can be copied, the registration cannot be. I think that’s it. It is probably more wonky than that. But the point is, it creates a digital thing that cannot be copied. And that makes it sorta kinda like the original Mona Lisa. Meaning that you can, in theory, have a iMonaLisa 2.0 NFT that is worth a billion dollars and still have a bunch of iMonaLisa 2.0 copies worth $25 a pop.
I think that’s it. More or less.
But it brings us to the question that many people ask about NFTs. Why would I want to own one? NFTs have other applications that have nothing to do with art. They can be used for all kinds of security functions for instance. But let’s stick to why you would want to own an NFT of an art work, an iMonaLisa 2.0. To get there, though. Let’s start with why you would want to own the physical paint-and-canvas Mona Lisa 1.0 rather than a copy.
The answer is sentiment. The Mona Lisa in The Louvre has no functional or even aesthetic properties that a well executed copy or even a $25 poster does not have. They do all the same things it does. The only special property it has it that it is the one touched by Leonardo da Vinci. It is made with the paints he owned and the canvas he owned. Its brush strokes were made by his brushes. None of this makes any functional difference between it and the copies. But it makes a huge sentimental difference.
Consider what happens when you send your child to school in the morning. Little Mary is eight years old, four foot three tall, and gets B’s in most subjects. The child that the school sends back to you at the end of the day also answers to the name Mary, is also eight years old, four foot three tall, and gets B’s in most subjects. She is functionally equivalent to your daughter in every way. She just happens to have been born to somebody else. Despite the child they sent you being functionally equivalent to your original child, you want your original child back. The reason? Sentiment.
Compare this to the situation in which a colleague borrows $20 from you. You give them a $20 bill. The next day they give you back two tens. Are you upset? Do you demand your original $20 bill back? No. The two tens are functionally equivalent to your twenty. And in this case, functional equivalence is enough. You have no sentimental attachment to that particular twenty dollar bill. Your attachment is only to the purchasing power it represents and any other bill or combination of bills the represents the same purchasing power is just as good.
This, by the way, is what “fungible” means. Money is fungible. You can exchange two tens for a twenty and think nothing of it because their purchasing power is equivalent. Your children are non-fungible. You are not willing to exchange your child for someone else’s. It matters that you possess the particular child that was born to you.
Mona Lisa posters are fungible. If yours is ripped, you can send it back and they will send another. The original Mona Lisa is not fungible. The Louvre would object if you swapped it out for your poster.
Digital things are inherently fungible because they are just information. NFTs (Non-Fungible Tokens) are a complex mathematical way of making a digital thing that isn’t fungible.
Why would you want a non-fungible token for a piece of digital art?
For the same reason that you would want to own the Mona Lisa rather than a Mona Lisa poster.
Or would you? That is very much the question.
Remember that the reason for preferring the original to the copy is sentiment. But it is also true that some rich people buy art purely as an investment. They may not care about the art at all. They are simply relying on the art going up in value over time so that they can sell it for more than they paid for it.
But why would it go up in value over time? Ultimately, whatever value is placed on the Mona Lisa comes back to sentiment. If you are not sentimental about it yourself, the value of your investment is ultimately based on other people being sentimental about it. If no one in the world cared more about The Mona Lisa than they do about a painting of dogs playing poker, it would not be worth a billion dollars. Investments in art, therefore are speculations on sentiment. But no one is going to speculate on sentiment unless they have a good reason to rely on that sentiment continuing or becoming stronger.
So the answer to why the Mona Lisa is worth a billion dollars comes down to what we might call durable sentiment. We have every reason to believe that future generations will also feel more strongly about the Mona Lisa than a painting of dogs playing poker. If that turns out to be wrong, then someone is going to lose a billion dollars. But it’s probably not wrong.
So, even if you are not sentimental about the Mona Lisa yourself, you might buy it because you expect it to increase in value because of the durable sentiment attached to it.
Does the same apply to NFTs? People are, at the moment, paying seemingly silly sums for NFTs of digital art of no obvious merit and even chapters of unpublished novels (as Elle Griffin describes in the article I cited above). It might be an act of charity or patronage — they are willing to put money in the pockets of artists because they like them or their work. But such charity is not a financial investment, and you could achieve the same effect by giving the artist cash. The point of buying an NFT of the work rather than just dropping a twenty in the artist’s upturned hat is that it is an investment. It is bought in the hope that it will increase in value over time, like the Mona Lisa.
But if the Mona Lisa increases in value over time because its value is backed by durable sentiment, is the same true for NFTs?
Investments can go up for reasons other than their underlying value. Sometimes they are driven up by nothing more than greed and optimism, by what has been memorably called irrational exuberance. A savvy investor (one untroubled by sentiment) can make a lot of money in times of irrational exuberance, as long as they get out at the right time. The rest will lose everything when the irrationality of their exuberance is exposed.
Which brings us back to durable sentiment. For NFT art investments to work, it seems to me, NFTs of particular works of art have to be backed by durable sentiment. Are they? Or is it all just irrational exuberance? Can a particular NFT be the object of durable sentiment in the same way that a physical painting by a grand master is?
One thing I observe about durable sentiment in the physical world is that it is a fundamental human characteristic that is displayed by everyone. If your two-year-old loses their stuffed lamb, don’t expect to mollify them with a brand new lamb from the shop. New lambs may be fungible, but they become non-fungible once their ears are chewed off and they smell faintly of poop. Then the two-year-old knows their lamb from every lamb in the world and will accept no substitutes.
We have a strong and durable attachment to individual physical things, from the relics of saints to our great grandmother’s vases to the marks on the doorpost that record the heights of our children. As with the original Mona Lisa or a great grandmother’s vase, to touch the things they touched brings a strong sense of communion. It is a visceral sense of attachment to those we love or those we admire mediated through objects long after they are gone. This type of sentimental attachment to particular physical things is universal and therefore durable.
Is this sentiment transferrable to NFTs? There are certain people today who are immensely proud of owning an NFT of something. They are all, or most of them, NFT enthusiasts. One element of their sentiment, certainly, is that they are doing something avant-garde. And as long as this stuff remains avant-garde the NFTs should retain their value for that reason alone.
But being avant-garde is not a durable property. Inherently, things that are avant-garde today will cease to be so tomorrow. It used to be avant-garde to own a smart phone. Early adopters were immensely proud of their possessions. It is not so any longer. Nothing is more boring or ordinary today than owning a smart phone. Avant-garde stuff either becomes ubiquitous (like smart phones) or scrap (like Google Glass or Microsoft Clippy). If the value of individual NFTs is based solely on their being avant-garde then, whether they become ubiquitous or scrap, they are not going to sustain billion dollar valuations.
There is, quite certainly, no durable sentiment for NFTs in the general public today. Most people have no clue what they are. True, the public once had no clue what smart phones or the internet were. But while we value those things today, I don’t think we are attached to them with the same type of sentiment as, for example, the two year old is attached to her stuffed lamb. Cell phones and Wi-Fi connections are, for all intents and purposes, fungible. If you lose one, you simply get another and move on. To justify a billion dollar valuation of a single object or token, you need it to be non-fungible. Which is why non-fungible tokens were created in the first place.
But is non-fungibility enough? If it is necessary, is it sufficient? An NFT isn’t a thing. It’s a token. Like any token, it just stands in for the thing. Can we learn to love a token?
Our sentimental attachment to certain specific physical objects is bred in the bone. It is a defining characteristic of humanity. If forms a durable sentimental attachment that has been tested across time and across cultures. But it is a visceral physical attachment to specific physical objects that can be held and touched and gazed upon. I am far from convinced that we will ever develop such a durable sentiment for the NFTs of digital objects. The physicality of an object like the lamb or the Mona Lisa seem inextricable from their sentimental value.
Maybe I am wrong about this. Show me the potential for durable sentiment around NFTs that extends not only onward in time but broadly outward into society at large. Then I might get interested. For now, while I recognize that there is an opportunity for a lucky few to get rich in the frenzy, I am not convinced there is anything durable here.
And if you are screaming no, no, no, that’s not it at all, that is what the comments are for.